RDP 2024-03: Demand in the Repo Market: Indirect Perspectives from Open Market Operations from 2006 to 2020 Appendix C: Glossary of Technical Terms

Cash rate – The Reserve Bank of Australia's measure of the cash rate is the interest rate which authorised deposit-taking institutions (ADIs) pay or charge to borrow funds from or lend funds to other ADIs on an overnight unsecured basis. This measure is also known as the interbank overnight cash rate. The Reserve Bank publishes the cash rate each day on the basis of data collected directly from financial institutions. This measure of the cash rate has been published by the Reserve Bank since June 1998.

Australian Government Securities – The Australian Government issues Australian Government Securities (AGS) in the form of Treasury bonds, Treasury indexed bonds and Treasury notes. These securities are AAA-rated. Note that prior to 2015 these securities were referred to as Commonwealth Government Securities or CGS.

Exchange Settlement Account – An account held at the Reserve Bank by financial institutions to settle financial obligations arising from the clearing of payments. These balances are sometimes also referred to as central bank reserves.

General collateral – is the range of assets that are accepted as collateral in the repo market by the majority of market intermediaries and at a very similar repo rate. That is, repo market participants are indifferent between securities that are generally accepted to be in the ‘general collateral basket’. General collateral assets are high quality and liquid. See also Wakeling and Wilson (2010).

Interest rate corridor – The interest rates on the overnight lending and deposit facilities provide a ceiling and a floor respectively for the overnight market interest rate.

Liquidity – Is a characteristic of an asset that allows the holder to sell it quickly without significantly affecting the price of that asset. In the context of this paper, we refer to liquidity as exchange settlement balances held at the central bank.

Open market operations – The buying and selling of eligible securities by the central bank in the open market in order to expand or contract the amount of liquidity in the system.

Repurchase agreement (repos) – Involve the sale (repo) or purchase (reverse repo) of securities with an undertaking to reverse the transaction at an agreed price and date in the future. Repos provide flexibility in that they allow the Reserve Bank to inject liquidity on one day and withdraw it on another with a single transaction.

An open repo (also known as an on demand repo) is a repurchase agreement that is agreed without fixing the maturity date. Instead, the repo can be terminated on any day in the future by either party, provided notice is given before an agreed deadline. Until an open repo is terminated, it automatically rolls over each day.